What Can You Afford to Pay for a Home?
by Mitch P. Truax
The time to decide how much you can afford to pay for your house is before you start looking for one. It is unfortunate that a lot of people do not do this exercise and then spend wasted hours looking for a house they cannot afford, only finding out when they apply for a mortgage.
Understanding how the process of how a lender knows what you can afford to pay for a house will make it easier on you. Lenders will also look at your current debt and fixed expenses, since you will have to continue to pay those and they want to be sure you have enough income left to pay the mortgage.
There are some rule of thumb ratios that most lenders use to take into account your income and expenses, debt ratios and closing costs, to decide what you can afford to pay for a house.
It is possible to calculate these costs on a worksheet, or you can contact a mortgage professional who will be happy to do it for you.
In most cases, having a sufficient deposit is the most difficult part of home ownership alberta mortgage broker. We are simply not in a savings oriented society and many have a hard time gathering that elusive next egg. The days of no down payment loans are now behind us since the credit crisis in the housing market, so most people will have to count on saving a large sum for their down payment.
A minimum of a 10% deposit will normally be required. This means that for a median priced house of $200,000, you will have to save the minimum amount of $20,000 for the deposit, and the additional funds for closing costs. You can get an estimate of closing costs from your lender.
So let us suppose that you need $25,000 to start looking for a house. Can you also afford the mortgage payments? You can look at many sites on the internet that will help you estimate what you can afford for a monthly mortgage, or you can call a mortgage professional.
Typically, the standard used is that your housing costs should not exceed 25% of your income. Banks will examine this closely, more so if you have high credit card debt. The lender expects you to use the remainsafter the 25% for food, clothing, utilities, education and savings, not high minimum payments on a card alberta mortgage. A high credit card debt will mean that you will have that much less available for your basic needs.
Barring excessive credit card balances, you can calculate that if you earn $6,000 a month, you can afford a payment of $1,500 for the mortgage, taxes and insurance. With this information in hand, you can now intelligently start to shop for a house.
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